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The Fool Portfolio

ALEXANDRIA, VA (March 10, 1998) -- Like the Chicago Cubs during a
good game, the Fool Port surrendered its early lead and then lost
the entire day in the end. Amazon and AOL were hitting for us early, but
then both came up lame. Iomega is on the injured list, and it seems that
KLA-Tencor and 3Com have been retired for longer than the past year.

The Dow hit a record 8,650 while the S&P touched a never-before-experienced
number as well, at 1,064. The Nasdaq jumped but is 35 points below its recent
high, at 1,748. The Fool Port crossed the $180,000 mark, reminding Fools
of the beauty of compounding. A mere 1,270 days ago, in August of 1994, the
portfolio was only worth $50,000. That means that the port has earned, on
average, $101 every single day, including weekends, since its launch. Not
bad for very minimal effort.

While we used to invest about $6,000 in each Fool Four stock at the beginning,
now, due to the portfolio's size, we invest $13,000 in each. In 18 months,
when we complete our next Foolish Four switch, we'll probably invest
more in each stock. Growth begets growth.

Ok. Enough filler.

Amazon.com(Nasdaq: AMZN) has gained 40% since January 1, growing
to a market cap of nearly $2 billion. The company trades at 13.6 times trailing
sales of $147 million.

Ten months ago there were an estimated 35 million Web users, and by the year
2000 it's expected that there will be over 150 million (according to a Morgan
Stanley Dean Witter report). That firm expects Web retailing to grow
aggressively, but to not displace traditional retail sales. It also
believes that as fragmented as online retailing is now, eventually only a
few leaders will emerge for each sales category. So far, Amazon is the book
leader.

What will be interesting going forward is whether or not Amazon can turn
book sales into sales of other merchandise, such as CDs, or whether a company
like CDnow(Nasdaq: CDNW) will command this niche. My personal preference
is that I'd rather use one Web retailer for as many of these kinds of purchases
as possible, and I'm most familiar with Amazon.com. In the end, though, it
will probably come down to whichever site has the best offerings (and respectable
customer service) for each product category.

Looking at CDnow -- with its abundant audio clips available for listening
-- makes me wonder how many features Amazon will offer in comparison when
it begins to sell music. Will Amazon compete on every level with CDnow,
or will it sell music as a "secondary" product, thus not offering as many
good services?

We'll see.

Another interesting fact from the MS Dean Witter report is the incredible
speed of adoption that the Internet has with consumers. It took radio 38
years to reach 50 million users. Television needed 13 years. Cable needed
at least 10 years. It is estimated that the Internet will take only five
years to reach the same number of people. Extrapolate that growth forward
and the Internet is an opportunity (in "speed" and in possibility for growth)
that businesses have never had before.

You can see why Internet companies shouldn't mind losing money now, or for
several years, as long as market share is grabbed and retained in
the process. Eventually, though, all stocks are valued on earnings. What
sort of earnings the Internet will provide is a question mark.

America Online(NYSE: AOL) appears to have the best revenue model
to date: it includes commerce, advertising, and subscriptions. AOL
is one of the few Internet companies already turning a quarterly profit.
The company trades at a market cap of nearly $13 billion, or over 6 times
trailing sales. The stock will split 2-for-1 fairly soon. AOL is up 38% this
year.

Innovex(Nasdaq: INVX) continues to languish in the wake of a disk
drive inventory glut, though our company has been able to turn a quarterly
profit with incredible margins despite the slowdown. Our investment in this
company is like a movie or a thriller book with a very boring beginning.
From now on we'll call Innovex "The Waiting Game." We've got to believe that
it's only a matter of time before disk drive orders increase and Innovex
is again cranking out more lead-wires and making higher earnings per share.

In the meantime, the company's software joint venture, called Smart Solution,
has signed a licensing agreement with Columbia HCA. Innovex expects the division
to remain profitable during this fiscal year.

Innovex trades at 10 times fiscal 1998 estimates of $2.05 per share (the
year ends in September), and 7 times 1999 estimates of $3.00 per share. The
1999 estimate is a big, fat, gigantic guess, though. Nobody knows what will
happen in 1999. Eventually things should pick up, though, and Innovex is
a company with 70% of its market (drive makers have nowhere else to go),
so it should benefit greatly with any industry upswing. So on we go with
"The Waiting Game."

Finally, last year AT&T(NYSE: T) soared on news of a new CEO,
but the stock has since cooled, understandably. This year Mr. Armstrong,
the CEO, aims to cut SG&A expenses by some $1.6 billion in absolute terms
from last year. Half of this cost-savings will come from layoffs, the other
half from operations. AT&T wasn't running quite as "leanly" as it could
have been over the past years. The flat stock price for half a decade supports
that fact.

Since January 1, Ma Bell stock has gained over 7%. AT&T trades at 19
times 1998 earnings estimates of $3.27 per share.

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